Entrepreneurs around the country are facing a mountain of risk with lots of unanswered questions and that’s because modern day business owners are closer to risk than ever before.  As a business owner have you done significant amounts of research to identify your market needs? (Strategy risk) Do you have full execution plans that are running effectively? (Operational risk).  Will you hit the red for spending too much money impressing your clients? (Financial risk).  Are you putting dents into your reputation through un-thought out actions? (Reputational risk).  Risk is not just something existing businesses have to watch out for.  Emerging companies should put their barriers up against legal risk as we will discuss in more detail below.

There are seven common mistakes (legal) that the majority of entrepreneurs do.  In order to protect your bottom line take precautions today otherwise your fresh business may be dead on arrival.

Mistake Number 1:  Not seeking legal advice at the very beginning

In a recent study published by Legal Shield it addressed that a large proportion of small businesses (60%) had experienced a “legal event” of some significance in the last few years.  Of this 60% over half would have made no contact with a lawyer.  It is a scary thought that over three million business owners who have no legal experience are carrying out their own legal work.  Admittedly many of these get through the other side without a scratch to their reputation or finances.  A huge legal invoice may not be welcomed post on your desk but those entrepreneurs that choose to go it alone in court risk everything; from sheer embarrassment to financial meltdown.

Mistake Number 2: Choosing to not disclose important information to partners or your lawyers

In short, tell your partners and lawyer (if you don’t have one, seek one) everything.  Not half the story; the good, the bad and the ugly.  Let’s face it, if you choose not to, bad things can happen.

You do not need to know every single personal detail about an individual but you want to know if your partner has been convicted for fraud which had “just slipped their mind”.  Where possible do plenty of background checks as it can save you thousands in legal fees.

Mistake Number 3: Forgetting to complete any important document

It is extremely important that all parties sign, date and initial any documents that are required for a particular transaction.  In addition to this the documents should be copied and distributed to all concerned.

Mistake Number 4: Using the internet to gain legal forms cheaply

It can be very easy especially in the current economic climate to trawl the internet for legal forms to save money.  Unfortunately, this is a common trap that many are falling into in order to cut corners.

In a particular case a young business owner looked to add two partners to her business.  She had already filed the relevant Limited Liability Company paperwork that was necessary.  She found these very easily on the internet.  These contained various errors; the most obvious being voting rights would be per capital (head count) and not percentage of share ownership.Understanding shares and their distribution within a company formation can help clarify things here and a professional service is advised.

The lesson learned here is any legal forms downloaded should be used as a pro forma/a template to assist completion.  Read them with caution and ensure all content is relevant to you and your business.

Mistake Number 5: Recruiting a generalist when in doubt

An odd rule but if you have a situation where you need legal advice, seek the help of a specialist. Paying a little extra money for excellent professional legal advice for a business is worth its weight in gold as it can potentially save you lots of money.  A specialist will work with you quickly and effectively, getting you the answer you need.

Mistake Number 6: Building a shed instead of a castle to capture your ideas

Protecting your intellectual property is something lots of business owners struggle with.  There are very little safeguarding mechanisms in place to protect a new concept or thought process.  Original works can be protected by Copyright and trademarks can be protected but how do you protect a discussion of ideas.  Demand a non-disclosure to be signed by all parties.  

Don’t be surprised if all parties do not agree to sign but it certainly shows that you mean business.

It is important to note intellectual property requires lots of feeding and care.  If the property is protected by a copyright or trademark extra attention is needed to reduce the risk of losing exclusive use.  If this does happen it can have detrimental effects to you and your business.

Mistake Number 7: Mixing business with friends

This can come in many shapes and sizes; such as the old school friend who you have not seen for twenty years offering to go into business with you or the brother-in-law who you have chosen to manage your business.

Where possible do not mix business with your friends and family.  Even if there are lawyers involved do not do business with someone who could not afford to lose the purse.  Things can get messy!

These are seven of the more common mistakes made by small businesses that can prove fatal. With these tips, you should be able to avoid them and your business should run smoothly.

This post does not constitute legal advice.